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Chapter 7 reflection

Efficiency is the allocation of resources in a way that maximizes the total surplus for everyone in society. It results in consumers feeling like they saved money, and producers feeling like they made a profit that is worth their while. Both consumer surplus and producer surplus can be measured with a demand curve. The surplus is the difference between the price they are willing to pay/ provide and the price they are able to purchase/sell. It basically measures how much the deal benefits them.

These surpluses are an important factor in determining market equilibrium because it results in the resources being allocated to the members who value it most, as measured by price. Like my dad used to say, "It's only worth as much as someone is willing to pay".

Market efficiency should not always be the goal of policy setters. For example, it would be unwise to try to maximize the black market for slave labor because that does not contribute to a society with equality. However, government should not interfere in industry by levying heavy taxes because that distorts incentives and causes some buyers and sellers to no longer participate, shrinking the market itself. A shrinking market means that economic growth, and therefore GDP will not be maximized. The ironic thing is, if government tries to raise tons of money through heavy taxes on a certain industry and it shrinks in response... they will have to raise the taxes even more in order to gain the projected amount.

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